Garrison (Asian Edition) Practice Exam Chapter 3

Print these pages. Answer each of the following questions, explaining your answers or showing
your work, as appropriate, and then compare your solutions to those provided at the end of the
practice exam.
1.

An analysis of past janitorial costs indicates that janitorial cost is an average of $0.80 per
machine-hour at an activity level of 80,000 machine-hours and $1.00 per machine-hour at an
activity level of 64,000 machine-hours. Assuming that this activity is within the relevant
range, what is the total expected janitorial cost if the activity level is 70,000 machine-hours?

2. Das Doors Inc. has recorded the following costs for utilities at various volumes of
production:
Production
Volume
600,000
400,000
200,000

Total
Utilities Costs
$700,000
500,000
300,000

Prepare a scattergraph to estimate the cost function for utilities costs.

3. Petrarca Company incurred $20,000 to ship 2,000 pounds and $27,500 to ship 3,000 pounds.
If the company ships 2,500 pounds, what is its total expected shipping expense?

4. The following information has been provided by the Fasan Florist, Inc. for the first quarter of
the year:
Cost of goods sold
Fixed administrative expenses
Fixed selling expenses
Sales
Variable administrative expenses
Variable selling expense

$ 640,000
220,000
100,000
1,400,000
60,000
140,000

What was the companys contribution margin for the first quarter?

5. Chefs on Call Inc. has provided the following data for the second quarter of its most recent
fiscal year:
Sales
Direct labor (all variable)
Direct materials
Variable selling expense
Variable administrative expense
Fixed selling expense
Fixed administrative expense
Variable manufacturing overhead
Fixed manufacturing overhead

$1,200,000
290,000
206,000
199,000
192,000
185,000
178,000
164,000
22,000

There were no beginning or ending inventories. What was the companys total contribution
margin for the second quarter?

GNBCY Practice Exam Solutions Chapter 3

1. Solution (Learning Objective 1):
Janitorial costs are fixed (rather than variable or mixed) in nature; that is, they total
$64,000 at both 80,000 and 64,000 machine hours (MHs) as shown below.

MHs
80,000
64,000

Average
Cost
per MH
$0.80
$1.00

Total
Cost
$64,000
$64,000

Accordingly, janitorial costs would be expected to be $64,000 at 70,000 machine hours

(or at any other level of machine hours within the relevant range).
2. Solution (Learning Objective 2):
(in thousands)
$700 $600 $500 $400 $300 $200 $100 $ 0
200
units

400
units

600
units

Based on the scattergraph above, the fixed cost portion of utilities cost appears to
$100,000, the intercept. The variable cost appears to be $1 per unit (that is, for every
200,000 units, the total costs increase by $200,000).
3. Solution (Learning Objective 3):
Using the high-low method, the companys variable cost per unit for shipping costs can
be calculated as follows:
Variable cost per unit = Change in costs Change in units
Variable cost per unit = ($27,500 $20,000) (3,000 2,000)
Variable cost per unit = $7,500 1,000 = $7.50 per pound shipped.
Then, the companys fixed shipping cost can be calculated as follows:
Total cost = Total variable cost + Total fixed cost or
Total fixed cost = Total cost Total variable cost
Total fixed cost = $20,000 (2,000 pounds x $7.50 per pound)
Total fixed cost = $20,000 $15,000 = $5,000
Finally, if the company ships 2,500 pounds, its total shipping cost can be estimated as
follows:

Total cost = Total variable cost + Total fixed cost

Total cost = (2,500 pounds x $7.50 per pound) + $5,000
Total cost = $18,750 + $5,000 = $23,750
4. Solution (Learning Objective 4):
The companys contribution margin for the quarter would be determined as follows:
Sales
Variable expenses:
Variable selling expense
Cost of goods sold
Variable administrative expenses
Total variable expenses
Contribution margin

$1,400,000
$140,000
640,000
60,000
840,000
$560,000

5. Solution (Learning Objective 4):

The companys contribution margin for the quarter would be determined as follows:
Sales
Variable expenses:
Direct labor
Direct materials
Variable administrative expenses
Variable manufacturing overhead
Variable selling expense
Total variable expenses
Contribution margin

$1,200,000
$ 290,000
206,000
192,000
164,000
199,000
1,051,000
$ 149,000